This wedge pattern says the FTSE is about to spasm violently

There’s something weird about the FTSE 100 right now.

In all of my years of trading, I’ve never seen a stronger example of ‘resistance‘ (where a market is unable to rise higher than a specific value) than I’m seeing in the FTSE right now.

The FTSE index looked like it would first rise above the magic 7,000 level in 1999, during the dotcom boom. That boom turned to a bust, and the market fell away. The market gradually rose again to 7,000 in 2007, only to bounce off it a few times and then fall back after the 2008 crash.

Since 2013, the FTSE has tested that 7,000 number over and over again, but it bounces back down every single time.

Just look at the chart below. The seven and a half year old line of resistance really stands out, doesn’t it?

FTSE 100 spread betting chartThis resistance at 7,000 is one part of a ‘wedge’ pattern. The other half of the wedge is the support line, which begins at the 2009 low.

As you know, the wedge is one of my favourite patterns – and this one is a doozy, lasting almost six years. Wedge patterns are important because when a market eventually breaks out of a wedge pattern, it normally breaks out in a strong, decisive way – violently up or down.

In other words, something’s got to give.

Either the FTSE will finally surge through the 7,000 level, after 15 years of trying. Or we’re in for a serious crash.

I’m using Elliott waves to pinpoint the turn

When this dam breaks, the carnage will be immense. But which direction will it go?

Time to zoom in and take a closer look.

FTSE 100 spread betting chartThis is the close up chart. Following last Tuesday’s bounce off the long-term resistance line at the top of the chart, the market has displayed a perfect five-wave Elliott-wave pattern (the waves are numbered 1-5 in red in the chart above).

This is highly significant, because a five-wave Elliott-wave pattern normally indicates that the trend is about to change.

This five-wave pattern had some signature Elliott wave characteristics: wave 3 is long and strong, and wave 4 does not go higher than the price levels of wave 1. It ticks all the boxes.

And after that low (at the red wave 5 on my chart), the Elliott-wave patterns kept on coming. The rally from the low formed a textbook Elliott-wave A-B-C pattern.

So once again, I have all the evidence I need to strongly suggest the trend has changed.

Here’s how I’m trading it

This Elliott-wave pattern first showed up on 4 February, and it has already shown me a few different trading opportunities.

My analysis has shown me the best place to make low-risk trades. But what about if I’m wrong? Well, that’s where risk management comes into play.

I always use stop-losses to limit the amount I can lose in any one trade. And I use my 3% rule to determine exactly where to place my stop-loss (my 3% rule says that you set your stop-loss in such a way that your maximum loss from each trade is equal to 3% of your total trading capital).

That way, whatever the market does from here, I am trading with the odds on my side. That is what the pros do – and over time, if my analysis is right, I’ll win more than I lose.

A final thought

Following a disappointing trade, a lot of traders give up on that market and switch to another market in disgust. They might have studied the gold market for days or even weeks, stalked their trade, spent much effort in trying to nail that perfect trade entry – and still lost money.

To some, that would be a devastating outcome. That’s an understandable response. But as a trader, it’s a terrible mistake. You should never allow your emotions to cloud your judgment in that way.

Every morning is a new day. Keep analysing your charts with the updated action, and never be afraid to change your mind.

Nimble traders are usually the most successful.

  • Charles Gurd

    So what have you actually said? … it is going to spasm up, or spasm down!

    … as far as I can see, You have said absolutely nothing other than a load of double speak …. probably so you can come back, when it has done one or the other, or … none of the above and claim to be a guru.
    Do you not realise that people see what your game is?

    TG

  • Eddyboy

    Fine and interesting observation. There will need to be a lot of consensus on the positive side to push thru this barrier which seems to be unusually steady despite a lot of recent activity. I tend to a certain amount of lower activity before we can even consider a breakthrough. QE didnt do it, not sure what will. Exciting times

  • spanner

    I don’t think you understand Charles, the chart above showing the last few days shows a clear elliot wave pattern! The jagged line of the last few days (clearly labelled just in case you can’t see it) denotes that after 7 years there’s going to be a ‘violent spasm’!
    John has told us there were a ‘few’ entry points though he didn’t say exactly where they were or where his stop loss might have been. You may have to buy his course in order find that out!
    Its funny he should mention the Gold market and sticking to a market where you’ve lost a trade. At the begining of last week he said – “Elliott wave theory says that a trend changes direction after five waves. I count four waves so far from the December low, when this trend first began. If the theory holds, then I can expect gold to rally from this point. Under this picture, a new high above $1300 becomes likely (point 5).” This was when Gold was $1276. Gold has since fallen to about $1240! Can we pressume that elliot wave theory did not work on this particular occasion, although usually it does? I am therefore waiting for his next comment on Gold!
    More seriously, if he did have a bet on (his previouse Gold bets were all winners so he should have done?) he hasn’t told us whether he lost it. Then again, he never tells his entry, stop, target or time frame. If he does not tell us that then whether or not he lost or won a bet cannot be proven, can it?
    Saying this, it is a shame he has made so made so many unverifiable claims to success and actually misrepresented or lied about how he correctly ‘called’ market events. The FTSE is a case in point because it does appear to at a treble-top and therefore people are nervous there may be a major sell-off ahead which could last a number of years. He does however draw attention to these events and gives a very usefull insight into them even if through some of his theories, which may seem far-fetched. Personally, that his interpretation of the price data of the last 5 days marks the top of this last 7 1/2 year uptrend does appear far-fetched?

  • Bronco Bill

    This is where looking at the long-term chart comes in handy.
    Look at a simple Line Monthly chart going back 20 years.
    Plot on this a 26 Month SMA. Now plot above a 14 Month RSI.
    Take a careful look and take note of the big Price/RSI divergence not only since 2013 to now, but also the previouse highs exactly 7 years apart. Also note where todays price is and the SMA.
    The strength/momentum has been draining away for some time now going by the charts, but who knows anything can happen.
    However when viewing this along with John’s chart anyone thinking of placing a long trade for the medium or long term better have good stops in place, as always.

    • spanner

      Thank you for your comment. As I see it the price of the FTSE is the same as it was 14 years ago, so taking inflation into account (if you can) or if this was a buy-to-let property, prices would be cheap even if 14 years ago was the top of an ‘irrational’ market. Capital looking for yield (hands-off) has few alternatives to the stock market, the risk appears high but that does not stop people investing or for the long term..

  • Bart

    Rising wedge? Maybe … A more optimistic trader might read it as an ascending triangle = bullish. A rising wedge will more often than not break to the downside and TA theory counts the fall to the base of the wedge – ouch ! That’s seven and a half years of gains wiped out. Not good news for buy and hold investors.

    I don’t know how experienced John is on wave counting but on a cheerier note, the team over at Prechter’s EW site reckon we’re in a minute corrective wave iv on the FT100 to eventually be followed by a wave 5 up which should comfortably push us through that 7000 resistance. After that the wheels are supposed fall off and we all have to climb into our shorts … who knows? Anyone’s guess. Having just checked the IG spread site I note traders are 72% short the Footsie

  • martin gale

    surprised those who have commented are surprised with the lack of conclusive strategy…EWT is still, after all, a theory: the clue is in the name. Practitioners are vague soothsayers who say on the one hand the wave counts says this…but an alternative says… (often the polar opposite) … and so it goes until they vacillate themselves into analysis-paralysis with a final summary that is so impervious to logic you are left with a “milky smile and a well pick one” shrug of the shoulders from the brave Elliotticians (as they so grandly name themselves – a title evocative of robe wearing cultists like the Illuminati, except there rarely is any illumination from their wave counting and spell muttering).

    The language in the above article speaks of oncoming doom and hints of crashes, 7 year lows and the end of the market as we know. It is supported by analysis that is a rattling off of jargon on Wave x and y with the inclusion of the dogmatic necessary invocations, “long and strong” vapour and is as actionable as staring at goat’s entrails…at least no animals were hurt in this vague apocalyptic prophesy. True to form as with all EWT analysis, it leaves tons of room for a hindsight congratulatory reinterpretation should the UKX break above 7000 a.. afterall, the trend has changed though which trend and what timescale is of course unsaid.

    Remember, experts get paid for writing this stuff: they get paid for being wrong …

    • spanner

      Excellent comment.

  • Bronco Bill

    As ol’ Jesse Livermore said ” The markets are never wrong, opinions often are”.